The Federal Deposit Insurance Corp. is appealing a recent bankruptcy court ruling involving the parent of a failed bank that could ultimately mean billions of dollars to creditors of bank holding companies.
The FDIC is appealing a ruling by Judge Dwight H. Williams Jr. of the U.S. Bankruptcy Court in Montgomery, Ala., dismissing the bank regulator's bid to go after Colonial BancGroup Inc., the shuttered thrift's former parent, for failure to maintain capital levels at the bank. Bankruptcy court appeals are typically routed to the U.S. district court.
The FDIC, as the receiver for Colonial's shuttered thrift, said it was entitled to a nearly $1 billion priority claim in the parent's bankruptcy case. If successful, Colonial's bankruptcy lawyers had argued, the holding company would have been forced to liquidate and creditors owed about $400 million would have been out of the money.
Williams ruled in favor of Colonial, saying the "unambiguous language" of agreements between the parent and federal and state bank regulators indicated the holding company "did not make a commitment to maintain the capital of Colonial Bank."